Tuesday, August 16, 2005

The Price Of Going Out Of Business

You get inside and find most everything is 30% off - 30% off of an outrageously high price???

A large grocery store chain is going out of business in my area and I thought I would take the lag in news in the Mac Universe to discuss Going Out Of Business Sales.

First of all, once a company has announced to the public that they are going out of business - usually they have already struck a deal with a liquidator to sell their entire inventory.

What does that mean?

Usually, upon announcement of a bankruptcy or financial problems - large store chains are contacted by dozens of companies that will offer immediate cash payouts for remaining inventory. Sometimes, these payments will involve buying the fixtures and even purchasing the lease on the property.

Some companies, such as Apple, have contractual deals with stores, that sell Apple goods, that their items cannot go below a certain price; while under the same store name. Liquidators don't always follow these contractual rules.

Upon going out of business the store will usually just hand over management to the liquidator. They come in, give the employees a quick crash course on what's going to happen over the next few weeks, and then the fluorecscent signs start going up.

Typically liquidators tell the employees:

1) Do not tell customers when the next % off reduction will be - tell them to keep checking back

2) Discourage customers from purchasing already clearanced items by reminding them about a no return policy

The liquidators then bring in researched pricing information and do a complete inventory update; where they consolidate as much of the store as they can. They purposely leave empty racks with one or two items on them to make it appear as if things have already been sold. At this time, they also remove all sales and all mentions of discounts, loyalty programs, and rebates.

Usually items are re-priced with original manufacturer's suggested retail.

Original Manufacturer's suggested retail prices are ficticious prices that play two roles. One is to make a consumer feel that they are getting a bargain. The other purpose is to make the reseller feel they have a low price. Hardly anyone sells at Suggested Retail prices, but many stores try to accentuate the Suggested Retail vs "their actual retail price".

THEN 30% - 70% is taken off the Original or Suggested Retail Prices. Since these prices are typically 20% higher than average retail, items are often a mere 10% off. With online retail being an average of 10%-15% off of brick and mortar stores - this is hardly a discount anymore.

Where this can make a big difference is electronics. Electronics and computers typically have defied pricing models and gotten less expensive over time. A local Service Merchandise went out of business about a year ago. The store had 8 MEG Smart Media memory cards for digital cameras for $54.99. But hey, they were 70% off.

An example from the grocery store I visited yesterday is candy for $1.09. Candy that typically sells in my area for an average of 55¢ to 85¢.

Just a note, I have been getting 128 MEG Smart Media cards for almost 5 years for $29.99 or less at retail and online

Liquidators will often remove high end items from a store before a sale. For example; most all iPods were removed from a local Radio Shack; when it recently went out of business near me. (Radio Shacks are individually franchised.)

I believe there should be new laws passed concerning going out of business:

1) The tax writeoffs these companies take for bankruptcy are enormous - laws need to be in place to discourage bankruptcy.

2) I believe it should be investigated more thoroughly if sales taxes are being paid by these liquidators at the end of each sale

3) Prices should be marked with average retail, not suggested retail

4) Retailers should be forced to a timetable of reuse for their abandoned property or the property should be put up for auction. KMart's recent closing of 100's of stores nationwide left large holes with ugly run down buildings littered across my area (and I'm sure other cities in the US as well) These buildings are often an eyesore and sometimes a public danger as kids and vandals use them for playgrounds.

Sometimes a business's loss can be your gain, but just be aware - liquidators are in the same scum category as spammers and telemarketers!